A Huge New Market for Netflix!

Netflix eyes Canada for its first foreign expansion market.

The Great White North may be an appropriate way to describe Netflix's (Nasdaq: NFLX) buoyant stock in recent years, but it's also where the company is heading. Netflix will be available in Canada later this year, exclusively as a streaming service.

Netflix won't be opening a handful of new regional distribution centers, nor will subscribers up north receive Canadian-red mailers with DVDs or Blu-ray discs inside. Instead, they'll enjoy a digital smorgasbord of whatever flicks the company is able to secure licensing rights for in Canada.

This bear is watching, on many different levels. Details beyond a fall launch have yet to be revealed, but the company's first international push should answer several big questions.

How much will plans cost?There isn't a "streaming only" option stateside. Unmetered digital plays are simply included in all of the unlimited plans, starting with the $8.99-a-month offering that includes one DVD out at a time.

In other words, many of Netflix's 14 million subscribers may actually mistake streaming as a "free" offering, when it was simply tacked on as the mother of all retention bonuses at no additional cost.

However, millions of Netflix subscribers ignore the generous perk. Just 55% of Netflix users took advantage of streaming during the first three months of this year. That number continues to inch higher with every passing quarter, but it still means that more than 6 million Netflix users either don't see the value in the feature, or just aren't technologically able to get it going.

Either way, Netflix can't storm into Canada at anywhere near the $8.99 monthly price point without optical discs. Finally, Netflix will know the true value of its streaming service.

Will it go alone?Netflix had indicated that it would be expanding into one new market this year, so this move isn't much of a surprise. Shares actually failed to beat the market during yesterday's meager advance. However, it's clear that Netflix will have to expand quickly throughout the planet if it sees any kind of promise in its streaming buffet outside of North America.

Rivals know this, and the same titans that have misread consumer appetite for digital video by offering only piecemeal rentals -- Amazon.com(Nasdaq: AMZN), Apple(Nasdaq: AAPL), and Blockbuster -- are unlikely to let Netflix have all of the unlimited fun in Canada.

The rival to watch here is Coinstar's (Nasdaq: CSTR) Redbox, whose DVD kiosks are already growing more quickly than Netflix's overall business. Now Redbox will be moving beyond its brisk $1-a-night rentals, revealing a highly anticipated digital strategy in three months.

Blockbuster has stores in Canada. Amazon and Apple have a strong overall retail presence in the country. Netflix and Redbox are on the outside looking in, but one can't dismiss Cointstar's fast-growing subsidiary.

If Redbox is lining up movie studios for a digital offering later this year, it may as well license for all of North America and take on Netflix while the latter's Canadian efforts are just getting started.

We don't know about Redbox's plan, but we did get a tease earlier this year. The chain began surveying customers, floating their perception of a monthly plan that includes unlimited streaming and four nightly rentals at a compelling price point of $3.95 a month.

Is Canada ready?Netflix, paired with unlimited broadband plans, has created a cottage industry for home-theater appliances that stream flicks. TiVo(Nasdaq: TIVO) and Microsoft's (Nasdaq: MSFT) Xbox 360 led the way two years ago, giving Netflix the benefit of streaming through boxes that were already connected to televisions.

The revolution continues, and now even Google(Nasdaq: GOOG) is getting into the set-top box convergence niche with its Google TV initiative.

There hasn't been a pressing need for similar home theater streaming outside of the United States, in part because many countries -- particularly European ones -- are keeping growth in check with their metered bandwidth.

Canada is a good choice for Netflix's expansion, largely because of its proximity to the United States. Success will probably also hinge on how deep its streaming library is for Canadians. Will it match the roughly 20,000 titles already available domestically? Will it offer more new releases, in order to justify the premium stand-alone pricing?

The next few months will reveal plenty about Netflix's viability as an exporter -- and how its competitors will react to the opportunity if it's initially successful.

Digital streaming just got a little more interesting.

How do you think Netflix will fare in Canada? Share your thoughts and your potential suitor in the comment box below.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.
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